Mumbai: Declining gas production and weak global demand for petrochemicals due to prevailing macroeconomic conditions may make the quarter ended 30 September a sluggish one for Reliance Industries Ltd (RIL) in terms of sequential earnings.

RIL’s Krishna Godavari basin.

On a year-on-year (y-o-y) basis, however, the oil-to-yarn and retail conglomerate’s financial numbers are expected to reflect healthy growth. RIL will announce September quarter earnings on Saturday.

A Bloomberg estimate of 15 analysts pegs RIL’s estimated net sales at 79,680.23 crore and net profit at 5,753.73 crore. The expected sales is 38.6% higher year-on-year and 1.6% lower quarter-on-quarter (q-o-q). The expected profit is 16.8% higher y-o-y and 1.6% higher q-o-q.

A 1.6% sequential rise in net profit for RIL will be its slowest rate of bottomline growth since September 2010.

Barring September 2010, when RIL’s quarterly net profit grew 1.48% sequentially and September 2008, where it rose 0.15%, September quarter profit has registered a robust q-o-q growth between 5% and 29% since 1997.

RIL gained 2.36% on the Bombay Stock Exchange on Friday to close at 866.8. The benchmark Sensex rose 1.18% to end at 17,082.69 points on the same day.

In the July-September quarter, RIL fell 10.03%, while the Sensex fell 12.69%.

Some brokerages, including Nomura Financial Advisory and Securities (India) Pvt. Ltd and Elara Securities (India) Pvt. Ltd, have also forecast a drop of 0.9% and 0.8%, respectively, in net profit. Kotak Institutional Equities Research has estimated a 1% q-o-q decline in net profit for the September quarter.

If it reports net profit lower than the June quarter, it will be the first sequential decline in bottomline since June 2009.

Even those that do not expect a q-o-q decline in profit, are looking at earnings remaining almost flat. Brokearges such as Citigroup Global Markets Inc., Deutsche Bank AG, Edelweiss Securities Ltd and ICICI Securities Ltd have estimated a 0.5-1% q-o-q growth. Citi, Deutsche and Edelweiss have also accounted for a 4.3-7% decline in RIL’s earnings before interest, tax, depreciation and amortization (ebitda), or operating profit, over the June quarter.

The weakening of the rupee against the dollar may provide support as exports account for around two-thirds of RIL’s revenue. In the September quarter, the rupee weakened 8.73% against the dollar to 48.97.

Jaypee Institutional Equities estimates a 3.6% rise in net profit from the preceding quarter, while Bank of America-Merrill Lynch expects 2% growth.

A strong performance by RIL’s refining business is also expected to aid performance.

Nomura expects RIL to report a gross refining margin (GRM), the difference between the price of crude and value of refined products sold, of $10.8 per barrel—37% higher y-o-y and 5% higher q-o-q. The brokerage expects the premium that RIL enjoys to the benchmark Singapore GRM to remain constant at $1.8 per barrel.

ICICI Securities stated in its report that RIL may report a GRM of $10.5 per barrel and the growth in its refining margin may not be commensurate with the rise in Singapore’s GRM. A rise in the benchmark GRM is “driven by gasoline and fuel oil spreads, which form a lower proportion of RIL’s output," said a 11 October ICICI Securities report.

The petrochemicals business will be an area of concern for the company in the September quarter, analysts said.

“Petchem ebit (earnings before interest and tax) is expected to be down q-o-q led by decrease in polyester and polypropylene spreads," the ICICI Securities report said.

Kotak said in its 5 October report that RIL’s performance in the petrochemical segment will be a reflection of a sequential decline in global chemical margins.

Falling gas production from the D6 block in the Krishna Godavari basin will be another drag on financial performance, as it has been for the last few quarters.

RIL is also expected to account for lower earnings from its oil and gas assets—including D6—than earlier. ICICI Securities and Bank of America-Merrill Lynch are of the view that earnings from only 60% of the gas produced from D6 in September will be recognized in RIL’s books (down from 90% earlier), as its deal to offload a 30% stake to BP Plc got approval in August.

Gas production from D6, which was to have reached 60 million standard cubic meters per day (mscmd) by now as per the original plan, will average around 44-45 mscmd for the September quarter, according to analysts.

S.P. Tulsian, an independent stock market analyst based in Mumbai, said that a 10 mscmd drop in average annual gas production could lower RIL’s net profit by 1,000 crore.

Some analysts are also wondering about RIL’s decision to announce quarterly results on Saturday, when the markets are shut over the weekend.

“I can’t remember the last time they did so (announce results over a weekend)," said Arun Kejriwal, director of Kejriwal Research and Investment Services Pvt. Ltd. “It could either be because the results are below expectations, or they may make some announcement and want the market to digest the news before it reopens on Monday."